Lesson number one: Don’t underestimate the other guy’s greed” – Frank Lopez, Scarface.

Movies may seem like flights of fantasy but every so often, they offer nuggets of sound advice. We have advised many partnerships at all stages of their existence ranging from inception to dissolution and there are several key points that people should consider when embarking on such a venture.

In a partnership each party will bring funds or physical equipment (or both) to the business and will want to ensure that their interests are protected. Unfortunately, there is no sure-fire way to prevent a dispute from arising in the business world, even between business partners who once shared a common goal and, in many cases, were friends or family. Therefore, it is important that all parties do everything possible to protect their interests and also identify mechanisms to resolve in a quick and cost efficient way any disputes that may arise.

Partnership Agreement

A 25% slice of something is better than 100% slice of nothing.” – Fast Eddie, The Hustler

Before you even start, each partner should review what they are contributing to the partnership and also what they want to get out of the partnership. An important issue to address at the outset of forming a partnership is codifying, ideally in a partnership agreement, the investments and returns that each party will make or receive. This ensures that all parties know what they are entitled to from the very beginning. A properly drafted partnership agreement will also provide the parties with a mechanism for bringing the partnership to an end should the need arise with a clean break and thereby potentially avoid years of protracted litigation.

Accounts

Show me the money!” – Jerry Maguire, Jerry Maguire

Take the time and do your research on a good firm of accountants or bookkeeps to manage the partnership accounts. They are invaluable. Axiom Stone have recently concluded a multi-million pound partnership dispute which was litigated with the High Court for over 6 years. That dispute concerned a partnership comprising 3 brothers who ran a property portfolio business dating back to the early 1980’s. Unfortunately, they never kept any formal accounts and this resulted in a very time consuming and imperfect forensic investigation to clarify the respective entitlement of the parties. Enlisting the assistance of a good firm of accountants means that the finances are handled properly and also means that a skilled and independent third party is responsible for that side of the business.

Liability We go to the mattresses.” – Santino Corleone, The Godfather.

When preparing to set up your partnership you will want to ensure that you minimise your personal liability in relation to the business. There are two types of partnership – a standard partnership and a limited liability partnership (LLP). In a standard partnership, each partner is jointly and severally liable for the debts and liabilities of the partnership whereas in an LLP each partner is not responsible for the liabilities of another partner. An LLP offers partners a similar level of security as shareholders of a limited company.

Summary

Whilst there is a great deal to consider when setting up a partnership our highly experienced and commercially astute Corporate Commercial team can assist with the appropriate structure and in ensuring that the rights and obligations of the partners are properly reflected in partnership agreement. In the unfortunate event that a dispute arises between partners, our experienced Dispute Resolution team is able to advise accordingly and to handle the dispute on your behalf. By taking the best advice at the right time Axiom Stone Solicitors can help you achieve your goals.

For any advice on the formation of a partnership or in relation to a partnership dispute, please contact:

Article by Toby Matthews, Senior Associate, Dispute Resolution